Economy & Business

Do 5 Million Americans Really Live in Third World Poverty?

People wait in line at the Fred Jordan Mission in Los Angeles, Calif., during the annual back to school giveaway in 2015. (Lucy Nicholson/Reuters)
The claim that they do is based on a failure to account for all sources of income.

Nobel Prize–winning economist Angus Deaton recently published an op-ed in the New York Times titled “The U.S. Can No Longer Hide from Its Deep Poverty Problem.” Deaton asserted that 5.3 million Americans (or 1.7 percent of the population) live on less than $4 per day and “are as destitute as the world’s poorest people. . . . [Their] suffering, through material poverty and poor health, is as bad [as] or worse than that of the people in Africa or in Asia.”

But measurements of poverty and deep poverty based on income are seriously flawed, because U.S. government income surveys:

• omit or severely undercount most of the $1.1 trillion that the government spends on means-tested welfare assistance each year;

• omit or undercount off-the-books earnings, which are prevalent in low-income communities;

• omit the incomes of cohabiting partners and parents; and

• ignore assets acquired in prior periods.

The omission and undercounting of welfare aid is particularly troubling. For example, in 2016, federal, state, and local governments spent $223 billion on cash, food, and housing benefits for low-income families with children, an amount three times that needed to eliminate all official poverty and ten times that needed to wipe out deep poverty among them. But the Census Bureau’s income surveys counted only $7.6 billion of this spending for purposes of assessing poverty or deep poverty.

A more accurate picture of the economic resources of low-income households can be obtained from the Consumer Expenditure Survey (CEX), collected by the U.S. Census Bureau and published by the U.S. Department of Labor. This survey contains detailed, self-reported household expenditures for each month and indirectly captures much of the income and many of the benefits missing in income surveys. The CEX routinely shows that low-income households spend $2.40 for every $1 of income that the Census Bureau claims they have.

Our analysis of the CEX shows that the number of Americans living on less than $4 per day is effectively zero. Since 1980, the CEX has reported on the annual consumption expenditures of 222,170 households. Of these 222,170 cases, 175 reported spending less than $4 per person per day. That’s one household in 1,270.

Deaton’s claims of Third World poverty in the U.S. can also be rebutted by examining the actual living conditions of families with ostensible incomes below the deep-poverty level.

Rather than 1.7 percent of the population living in deep poverty, expenditure surveys show the figure is only 0.08 percent. Moreover, examination of the 175 cases suggests that most are reporting glitches or anomalous situations, such as families stating they made no rent or mortgage payments during the year.

Deaton’s claims of Third World poverty in the U.S. can also be rebutted by examining the actual living conditions of families with ostensible incomes below the deep-poverty level. For example, according to government surveys, families with children living in deep poverty (based on income measures) typically have air conditioning, computers, DVD players, and cell phones. They rarely report material hardships such as hunger, eviction, or having utilities cut off. This seems a far cry from Deaton’s claim that these families are “as destitute as the world’s poorest people.”

Deaton’s claims of Third World poverty in the U.S. are simply the result of using severely flawed data that omit much of the existing welfare state as well as other economic resources. His analysis is like studying the world through a cracked microscope; it can tell you a lot about the defects of the microscope, but nothing about the real world.

Unfortunately, faulty claims about deep poverty promote alarmism, which generates pressure to further increase welfare spending. But rational public policy cannot be based on misinformation. Worse, misinformation distracts attention from the real issues facing the welfare state and the poor: low levels of educational attainment, low levels of marriage and work, criminal activity, drug and alcohol abuse, and poor home environments for children. These conditions generate a need for welfare assistance in the first place and undermine real human well-being.

Robert Rector is a senior research fellow in domestic policy at the Heritage Foundation, where Jamie Bryan Hall is a senior policy analyst in empirical studies.

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